1) Fear of Missing Out 2) Focusing on the Money and Not the Trade 3) Losing Objectivity in a Trade 4) Taking Risk Because you are Up (or down) Money Fear of missing out occurs when a trader is more afraid of missing an opportunity than they are of losing money. As a result, traders tend to overtrade in a desperate effort to ensure that they do not miss out on money-making situations. This overtrading can then potentially trigger an undertrading response if the traders experience a “trading injury” such as a big loss along the way. The way to solve this is first to accept the reality that you’re always going to miss out on something, somewhere. The second step is to establish game plans on paper and hold yourself accountable to executing those plans. Focusing on the money and not the trade limits performance because the trader quantifies their success based on their profit and loss data. As a result, when he or she is up or down a certain amount of money that they view as significant, they alter their trading behaviors regardless of what the actual, real trading opportunity is that is presented to them. The way to solve this is to quantify your success based on HOW you traded not HOW much you made on the trade. Did you have edge? Was it your pitch? Did you make a high-quality trade?
Losing objectivity in a trade occurs because traders develop emotional ties to their previous entry levels. The trader is no longer making trading decisions based on the trade, but rather based on how much they are up or down in the trade. The key to overcoming this is for the trader to continually ask him/herself, “Why am I in this trade?” and “If I was not in this trade right now, would I enter this trade long, short or do nothing?” (more…) |
Archives of “February 5, 2019” day
rss
Peak performance in trading is frequently hindered because of the emotions a trader feels, and more importantly how their trading behaviors change based on those emotions. I have found that the following four emotional experiences have the greatest, direct impact on a trader’s ability to achieve higher levels of success.95% Trader ….Don't Have Plan
Thought For A Day
Emotion and Trading
While trading I watch my emotional state of mind more than the price action. This has helped me trade better
Here are some of the emotions I feel from time to time and what they mean to me in context of trading
1) hesitation to pull the tigger – something is not right – don’t take the bet
2) anger – start of revenge trading – stop ASAP
3) uncomfortable while watching or not watching the price – non aligned with the market, trading with too much size – reduce size or quit
4) ignoring the little voice and gut feeling – trust the inner voice and take action
5) trading on hope – quit asap
6) thinking after hours or during market hours of money you can make = greed, impatience to make money – focus on how much you can lose
7) stress = wrong side of the market
8) feeling joy = right side of the market
"Here's the surprising thing about gold: it protects poorly against inflation" From Bernstein's Deep Risk
Just Be Yourself
Success in all aspects of life seem to follow those who do not try to act like someone else, but rather have a foundation of knowing who they are and act in that manner.
Many traders seem to want to act like other traders who have recently had a string of successes instead of being committed to their own strategy and trading style.
To be the best we can and have consistent success in trading takes a devotion and passion to learning our strengths and weaknesses and applying our skills to match up with these understandings.
Whether you are a risk taker or very conservative, both styles can reap profits as long as the trading matches with that personality. Just be yourself and let the results take occur.
Investing Like Warren Buffett.
In fact there are a couple of professors in Ohio, who studied any stock that Warren Buffett bought, if you bought on the last day of the month, when it was public that he owned that stock, and you sold it after it was public that he had started selling it, you would have generated north of 20% annual rate of return.
I would say that we will never see another Warren Buffett. Just like we will never see any Albert Einstein or another Mahatma Gandhi. Buffett is a very unique individual. His skillsets outside of investment are phenomenal but they get dwarfed by his investing skills. The main thing that makes Warren Buffett Warren Buffett is that he is a learning machine who has worked really hard for, let’s us say seventy years, and is continuously learning every day.
So the thing is if you want to be like Buffett, there is no short cut. First of all, you have to be deeply interested in investing and you have to be very willing spending tens of hours, hundreds of hours, reading the minutiae. There is a very famous value investor called Seth Klarman. He is into horse racing. And his famous horse is called Read the Footnotes.”
Thought For A Day
"Whether the object of ur faith be true or false, u will get the same results." Take control of your thoughts!
The Ten Most Foolish Things a Trader Can Do
In the spirit of April Fools Day here are the ‘Ten Most Foolish Things a Trader Can Do’. In no particular order of foolishness.
- Try to predict the future movement of a stock, and stay in it no matter what.
- Risk your entire account on one trade with no stop loss plan.
- Have a winning trade but no exit strategy to get out, no trailing stop or exhaustion top signal.
- Ask for and follow the advice of others instead of trading with your own trading plan, method, rules, and system.
- Trade your emotions instead of signals: buy when you are greedy and sell when you are afraid.
- Trade your opinions, not a quantified method.
- Do not bother to do your homework on trading, just jump in and trade, you are smart, you will figure it out.
- Short the best and most expensive stocks in the stock market and buy the cheapest junk stocks.
- Put on trades you are 100% sure are winners so you do not even need a stop loss or risk management.
- Buy more of a trade that you are losing money in and sell your winners quickly to lock in small profits.
Do not trade foolishly my friend.